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Surety Bonds

Surety bonds are bonds that involve three parties:  the principal, the obligee and the surety.  The principal enters into a bond or contract with the obligee and the surety agrees to pay any restitution, obligation or debt if the principal defaults on the bond or contract with the obligee.  Surety bonds establish credibility between the principal and the obligee so that in the event the agreement is defaulted upon, the surety will reconcile with the obligee.  As a result, it entices the obligee to engage in business situations because their losses are nullified by the surety. 

In regards to surety bonds, the surety acts almost like an insurance company but there are differences between a surety and an insurance company.  In the event a principal defaults on a contract to the obligee, the surety is required to pay all debts or honor the previously agreed upon contract which would include a monetary value.  The principal is then required to pay back the surety in full the cost of honoring the defaulted agreement.  Unlike insurance companies, a surety is entitled to all reparations paid to the obligee from the principal. 

Surety bonds come in all forms.  Types of surety bonds include contract bonds, bail bonds, court bonds, probate bonds, license bonds and public official bonds.  All of these surety bonds ensure that a surety (which may appear as a different entity in each instance) will ensure the debt of the principal.  In court and bail bonds, for example, the obligee comes in the form of the court or government.  In contract bonds, which are the most popular, the principal comes usually in the form of a contractor or someone who is required to complete a certain required function.  Ultimately, no matter what form is taken, surety bonds define liability and distributes it accordingly in a wide variety of arrangements.

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